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The government today approved a new policy under which fuel supply to the power sector will be either through the auction route or power purchase pact based on competitive bidding of tariffs.

The move may ease stress on account of non-availability of linkages to power sector projects.

The decision was taken at the meeting of Cabinet Committee on Economic Affairs (CCEA) headed by Prime Minister Narendra Modi.

"The coal availability scenario has now emerged from scarcity to adequacy," the Coal Ministry said in a statement.

"In this adequate coal availability scenario, the present policy proposes a fading away of the old linkage allocation policy and emergence of a new linkage allocation policy based on transparent and objective criteria for the optimal utilisation of the natural resources," it said.

The CCEA has approved the signing of Fuel Supply Agreement (FSA) with the Letter of Assurance (LoA) holders, it said.

Allocation of linkages for power sector shall be based on auction of linkages or through Power Purchase Agreement (PPA) based on competitive bidding of tariffs except for the state and the central power generating companies and the exceptions provided in Tariff Policy, 2016, it said.

PPA is a contract between two parties, one which generates electricity and one which is looking to purchase it.

"Coal drawal will be permitted against valid long-term PPAs and to be concluded medium term PPAs," the statement said.

CCEA approved "fading away of the existing LoA-FSA regime and introduction of a new more transparent coal allocation policy for power sector, 2017-SHAKTI (Scheme for Harnessing and Allocating Koyala (Coal) Transparently in India)," it said.

Allocation/grant of linkages will be based on auction and/or tariff based bidding, it said, adding that the policy attempts to make optimal allocation of the vital natural resource across the power units.

As per the new policy, thermal power plants (TPPs) having LoA will be eligible to sign FSA after ensuring that the plants are commissioned, respective milestones met, all specified conditions of the LoA fulfilled within specified timeframe and where nothing adverse is detected against the LoA holders and the TPPs are commissioned before March 31, 2022.

TPPs, part of 78000 mw, which could not be commissioned by March 31, 2015 will now be eligible for coal drawal if the plants are commissioned before March 31, 2022.

Actual coal supplies to all TPPs will be to the extent of long term PPAs or medium term PPAs to be concluded in future and coal linkages will be granted to central and state Gencos on recommendations of Power Ministry.

Coal linkages will be granted on auction basis for Independent Power producers (IPPs) with PPA based on domestic coal. The IPPs participating in auction will bid for discount on the existing tariff. The discount on tariff would be adjusted from the gross amount of bill at the time of billing.

"The future coal linkages for supply of coal to IPPs without PPA shall be on the basis of auction where bidding for linkage shall be done over the notified price of coal company. The LoA shall be issued to the successful bidders and FSA signed after meeting the terms of LoA," it said.

Linkages will be earmarked to the states where any linkage quantity unutilised for two years will lapse.

States may indicate the earmarked linkages to the discoms, which may undertake tariff based competitive bidding on long-term and medium-term PPAs.

Linkages, for full normative quantity, shall be granted for setting up Ultra Mega Power Projects (UMPP).

Coal linkages, for IPPs having PPA based on imported coal, shall be made available through a transparent bidding process. The auction done on the basis of linkage allocations to IPPs will result in cheaper and affordable power for all.

The coal supply to the TPPs has been made as per the provisions of the New Coal Distribution Policy (NCDP), 2007. Till 2010, Coal India (CIL) issued LoA for approximately 1,08,000 MW capacity and no new LoAs were issued thereafter due to the prevailing scarcity scenario. The CCEA in 2013 had directed CIL to sign FSA with TPPs of about 78,000 MW capacity.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)